Reality meets perception

It seems to me that every so often we are reminded of a fairy tale by something that occurs in real life. For example, we sometimes hear of a “Cinderella” sports team or an “Ugly Duckling” of an individual who somehow is transformed from a plain or even homely person into a beauty. Well, some recent events have made me think of the familiar tale, “The Emperor’s New Clothes” by Danish author Hans Christian Andersen. Here’s a quick recap.

This story is about two weavers who convince an emperor that they can provide him with a new suit of clothes – one they say is invisible to those who are unfit for their positions, stupid, or incompetent. In reality, the weavers are con-men who explain they are creating a very expensive fine fabric and go through the motions of cutting and sewing but are actually making no clothes at all. Thus, no one, not even the emperor nor his ministers, can see the alleged “clothes”, but everyone pretends that they can for fear of appearing unfit for their positions.

Finally, the weavers report that the suit is finished; they pretend to dress him; and the emperor marches in procession before his subjects. Although the townsfolk are ill at ease with the pretense they go along because no one wants to appear unfit for their positions or are stupid. Finally, a child cries out, “But he isn’t wearing anything at all!” and the cry is taken up by others. Although the emperor realizes the reality of the situation, he and his followers continue the procession because to do otherwise would be disastrous. Keep that story in mind while we switch gears.

About ten years ago something known as “bitcoin” first appeared as a kind of digital or virtual currency – a form of electronic-only monetary entity without a central bank or single administrator. Bitcoins, invented by some unknown individual(s) and created by an intricate digital process known as mining, can be exchanged for non-digital currencies, products, and services. Bitcoins can be sent from user-to-user on a dedicated bitcoin network without the need for intermediaries such as a bank or currency exchange usually associated with other currencies.

Bitcoins have no “backing” as do “standard” currencies such as dollars or pounds, exist only in cyberspace repositories, and are essentially unregulated although restrictions have been imposed by some financial institutions or countries. Buying real-world goods with any virtual currency is reportedly illegal in China and some banks have prohibited purchase of bitcoins with their credit cards.

Of primary interest here is that the value of a bitcoin is determined by the users – by their perception of a bitcoin’s worth – and thus can fluctuate widely. Here are some examples. The first purchase by bitcoin reportedly was for two pizzas for 10,000 bitcoin in 2010.

In 2011, the price reportedly started at $0.30 per bitcoin, rose to $31.50 by June, fell to $11 in July, further to fell to $7.80 the next month, and in a subsequent month to $4.77. In 2013, bitcoin’s price rose to $755 on Nov. 19 and crashed by 50 percent to $378 the same day. By Nov. 30, 2013 the price reached $1,163 before starting a long-term crash, declining by 87 percent to $152 in January 2015. See what I mean? All right, so what?

Well, late last year the value of a bitcoin had skyrocketed to almost $20,000, but as of this writing has dropped to about $3,500. According to reports, small time owners are dumping their bitcoins as quickly as possible to recoup whatever remains of their value while large account holders are struggling with huge financial losses. (Total world-wide value of virtual currencies has dropped from over $800 billion to about $180 billion in less than a year.)

You know, this sure looks like another situation where reality meets perception. Sure, bitcoin and similar virtual currencies are extremely complex strings of 1’s and 0’s that have been synthesized by very clever folks and have evolved into a world-wide system of repositories and exchanges, but they have no inherent value of their own. Nope, The worth of bitcoin and other virtual currencies is totally dependent on and determined by the system of these unregulated digital creations – a system which, according to some analysts, is facing possible collapse similar to the dot.com bubble some years ago. How about them apples.

Well, I’m not suggesting the virtual currency phenomenon is a scam such as that perpetrated on the emperor, but it sure makes a body wonder if these digital entities might turn out to be as real as the emperor’s new clothes. At least that’s how it seems to me.